How I’m Investing in Web3 Throughout The Bear Market

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Photo by Mark Basarab on Unsplash

We are in unprecedented times.

I’ve heard multiple experts say this is the hardest investing period they’ve experienced. Markets hate the unknown and we are in the thick of the unknown right now!

After recent events over the last few years, namely the excessive money printing by governments to combat covid-19, rampant inflation and the Russia-Ukraine conflict, I’ve never been more bullish on crypto and web3.

I say this because fundamentally, nothing has changed with the tech. If anything, it’s gotten better and user adoption is growing fast. Here are a few ideas that have happened in April:

list of ways bitcoin has been adopted by nation states throughout may
Taken from Charles Edwards’ Twitter

This doesn’t even take into account the pace of Bitcoin being pulled off exchanges, Biden’s executive order to study crypto assets and Fidelity allowing clients to add BTC to their 401k.

The only thing that has gotten worse is the price action. So if you can swallow your emotions, for the time being, you’ll benefit greatly when things turn bullish.

Markets right now

I know, times are scary.

Most days you wake up to find another few percentage points scraped out of your portfolio. But this is honestly expected and has been a long time coming — governments simply can’t keep printing money without at least trying to stem inflation.

Ryan Selkis of Messari wrote an awesome report back in December 2021 — “Crypto Thesis for 2022”. In it, he writes:

“That brings me to my first prediction for 2022: things will get worse before they get better in the “real” world. Inflation will remain above 5% throughout 2022 (70% confidence), while late-year interest rate hikes stall the stock market’s momentum and hurt growth stocks (60% confidence the S&P dips next year).”

So far, he’s been bang on. In fact, things are happening a little quicker than anticipated. Interest rate hikes have come in earlier. With 50 basis point hikes expected over the next few months, we are already seeing a slow down in growth as measured by negative GDP, the NASDAQ has been smashed along with most asset classes.

You might be asking “well shit, where do I put my money then?”

I had the same question. Damn near everything is showing negative returns and cash in the bank is being devalued through inflation at an alarming rate. Everything points me towards crypto.

Take a look at the chart below and have a look at how Bitcoin has performed compared with everything else over the “pandemic era.”

pandemic era returns for various assets like bitcoin and the S&P 500
Taken from Jurrien Timmer’s Tweet

It doesn’t take a genius to realise which has been the best performing asset class. Bitcoin leads the pack for crypto-assets and when it does well, the rest of the crypto market does well.

But is apeing into crypto really the best option right now? Absolutely not.

Like most markets, everything in crypto is down or trending sideways. Sure, you can find a few very special coins that are moving well and some NFT projects making millionaires overnight, but these are the exceptions to the rule.

For me, crypto is inevitable. Ryan Selkis tends to agree, here’s another passage from his thesis:

“There’s a lot to unpack over the course of this report, but the general theme is consistent: we’re going from an internet built on “rented land” with monopoly overlords, to an infinite frontier of new possibilities. On the frontier, crypto presents a credible revolution to all monopolies, which is why its inevitability scares the incumbents.”

But we still need to be extra careful of where we put our money right now. Throwing money into low cap “gems” may be all well and good during bull markets, but they get smashed during bears.

Your money is better off elsewhere until we have more direction. Here is where I’m putting my money until markets start to improve…

Stable coins

“Cash is trash.” But is it really?

Cash sitting in your bank account is losing buying power at more than 8% per year. Some people argue it’s over 20% per year. But if markets are trending negative, where the hell do we put our money?

We can take that cash and put it to work for us in the form of stable coins. Stable coins are like US dollars, but due to the wonders of web3, we can get great returns by placing them strategically into defi.

Miles Deutscher has been speaking a lot about stable coin farming recently. He’s a proponent of getting to a 25–30% stable coin position in order to have more buying power for the next run-up.

Farming or staking stables is safe because there is no risk of price volatility. 1 dollar is 1 dollar. Sure, there are risks of problems with the coin (UST de-pegging or USDT falling apart) as well as smart contract risk, but it’s far less risky than altcoins.

Miles has his own pool on Donkey — a social yield farming platform. His pool is paying out 27% APY on BUSD, the Binance stable coin.

I’ve put my money in here because at least I know it’s going to beat inflation. I’m going to continue to put a decent percentage of my wage each week into here. My aim is to grow my stable coin position to 25–35% of my portfolio. Once it gets to that level I’ll use the interest earned in the strategies below.

While the 27% might not last forever, and it has nothing on the 5–10x returns you can get in alts during bull markets, the idea is to not lose money. Slow growth far exceeds any loss. Goal number 1 is to survive right now. Goal number 2 is setting yourself up to thrive in the next bull market.

If you don’t like the idea of adding to the Miles pool, you can find 18% on Anchor Protocol with the UST stable coin.

There are probably some more degenerate plays out there that claim higher rewards than Miles' 27%, but I’ll leave that to your risk tolerance.

Bitcoin

The way I see the crypto industry is Bitcoin on one side, and everything else on the other. Bitcoin is hard money. Bitcoin is incorruptible money. Bitcoin is my end goal for every investment. My long-term goal isn’t to stack dollars, it’s to stack sats.

2022 has brought forward some perfect use cases for Bitcoin. Ukrainian refugees and Canadian truckers come to mind.

User adoption is growing every day and the fundamentals are improving, but the price isn’t reflecting that. And herein lies the opportunity:

“Be greedy when others are fearful, and fearful when others are greedy.” — Warren Buffett

My goal is simple when it comes to Bitcoin. Have more Bitcoin next week than I do this week. I don’t care so much about the price. If I have more satoshi’s next week than this week, I win.

I simply put a % of my paycheck into Bitcoin every week. Right now, I’m dollar cost averaging more than usual because markets are down. Bitcoin is on sale!

When the market gets frothy, I might put in a bit less. But still, my goal is to have more BTC every week. I got this idea from Simon Dixon — someone who has seen it all in the Bitcoin space. He uses this framework to see past the short term price fluctuations and into the long term potential of this asset class.

As I said above, my priority is building a cash position, so that is where most of my money goes — into stables. But Bitcoin is my next biggest investment.

Blue chips

Much like Bitcoin, I DCA into blue-chip coins each week. This is a smaller percentage of wage every week, but it’s more than $0.

My blue chips are Solana and Ethereum. Behind stables and BTC, I see these two as the safest plays in crypto right now. I view these coins as “too big to fail” with significant upside potential over the long term. Yes, every coin can go to zero, but I find it very unlikely with these two. I also find it hard to see them dropping another 30–40% from current prices.

Polkadot is also something I hold long term and just missed out on blue-chip status. I like DOT because of the interoperability aspect, the founder Gavin Wood, it's huge (and growing) developer base and the fact that VCs love it.

I need to see the DOTSAMA ecosystem built out a little bit more before elevating making it a blue chip. DOT has got serious potential though and with only 13 or so Parachains onboarded and over 87 to come, I see this as a great long term play.

Benjamin Cowen had a good point in a recent video. Whether Bitcoin price goes up or down, Bitcoin dominance is still going go to increase short term. You’ll struggle to find an altcoin that outperforms Bitcoin for the time being.

NFT’s

NFTs are an interesting industry I’m just getting into. I honestly need to learn more but it seems this is a rare space where you can actually make multiple-X returns during a bear market.

I watched Okay Bears shoot to the moon recently, and many more projects are coming out that have potential.

I’m only allocating a small position of my cash position to NFTs. This is more of a learning experience for me at this stage but it is something to do your own research on. I will have more to say on this in the future.

HODL

I fucked up slightly last bull run and didn’t sell my small altcoins and gaming projects. I should have moved more of them into Bitcoin or stables. It’s a good lesson for next time.

So I am “stuck” with a few highly volatile coins that have dropped 60–90%.

It’s not that I don’t believe in these coins long term, but investing in crypto is not like investing in the stock market. But my money could have been preserved and deployed better elsewhere (such as stable coin farming). Instead, they’ve lost value for months on end.

A bad drop in a stock is 15–30%. You can eat that. A bad drop in crypto is 90–95%, while you can eat that, you’re better off clipping profits when the market is going vertical. In doing so, you have far more buying power that can be put to use (and generate a return) during bear markets.

The rest of the market is linked to BTC. So when BTC starts to turn around, you see the higher cap altcoins as ETH and SOL follow. After a short window, you see the other micro-cap coins start to go parabolic.

So my plan next run is to have a decent chunk in BTC, and a lot in stables and blue chips. When the market gets going, I start to deploy my stables into alts and micro caps. I can “time” this better because alts follow BTC. I might miss a few percentage points by not being in super early, but I can have more conviction this way and place bigger bets. This is a far better risk vs reward ratio to me.

As the market goes parabolic, I start to clip profits from microcaps into blue chips, and eventually blue chips into BTC and stable coins. By the end of the next bull market, I want roughly 40% BTC, 40% stables and 20% in blue chips and/or NFTs.

So while I’m not adding to these positions, I will hold onto them. They have dropped too much to sell right now. I will add to them when I see BTC and blue chips take off, and confirmation from the markets that we might be entering a bull run.

In summary

Here’s what I’m doing while the markets look like shit…

  1. Increasing stable position through yield farming and putting a high percentage of my wage each week into it.
  2. DCA into BTC with a larger than normal percentage of my wage.
  3. DCA into blue chips, ETH & SOL, with a smaller percentage of my wage.
  4. Playing around with NFTs, doing plenty of research, and only investing in them if I have super high conviction.
  5. HODL my smaller alts and gaming crypto that I missed selling in the fall. I will only add to these when there is confirmation of BTC moving significantly higher.
  6. Having a long term time horizon and not checking prices every day. Using this time as an opportunity to learn and research new projects in preparation for the next bullish run-up.

I don’t believe it’s a question of whether Bitcoin and crypto will survive anymore. It’s simply about how long the price will trend down before we see prices turn green. I’m not smart enough to time the market perfectly, so this is the best plan I could come up with.

My last little hopium pitch to you is to show you a photo Will Clemente from Blockware Solutions posted to his Twitter. We are still so goddamn early. Consider yourself lucky that you get to pick up Bitcoin at these prices!

graph of bitcoin user adoption growth
Taken from Will Clemente’s Twitter

I’d love to hear from you about how you’re dealing with these uncertain times. You can find me on Twitter here.

This is not financial advice.

I’m exploring my own curiosities through writing.

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